KUALA LUMPUR - The ringgit continued to rally on Friday, making the currency the best performer in the region for a second day, following the appointment of Anwar Ibrahim as Malaysia’s new prime minister.

The ringgit rose by as much as 0.9 per cent against the US dollar to 4.4565 at 12.52pm, its strongest level since mid-August. The currency had surged by 1.8 per cent after Anwar’s appointment on Thursday, the largest single-day gain since March 2016.

Against the Singapore dollar, the ringgit strengthened 0.6 per cent to 3.2515, adding to Thursday’s 1.2 per cent gain.

Meanwhile, the stock benchmark index declined as much as 1.3 per cent on profit-taking after the market added close to US$19 billion (S$26 billion) in value - the largest in a single day since March 2020 - on Thursday.

Mr Anwar’s appointment removes a key uncertainty in the market and snuffed out concerns of potentially strong influence by the conservative Parti Islam Se-Malaysia, known as PAS, the biggest party in rival Perikatan Nasional bloc.

Still, analysts said the political risk premium on Malaysian equities remained given that the “unity government” model is unchartered territory and Anwar still has to test lawmakers’ support for his leadership with a confidence vote on Dec. 19.

“Until the country attains reasonable political stability, the KLCI index would likely be commanding ‘sub-optimal’ valuation,” Vincent Khoo, head of research at UOB Kay Hian, wrote in a note.

Investors will also continue to watch the announcement of the cabinet line-up and the tabling of a revised Budget.

Here is what analysts are saying:

Belinda Boa, chief investment officer of emerging markets equities at BlackRock

Malaysia’s economy is doing well, in our view - balancing political challenges with integration opportunities into tech related supply chains. Malaysia is coming up as a scalable alternative to China and, in some cases, Taiwan. Additionally, h...